Can administration stop my business from entering liquidation?

In short

Yes it can.  Often administration is used to halt a liquidation process and to give more time for the business to be rescued and restructured.  Administration can be used by limited companies and partnership but not sole traders or practitioners.

In more detail

Administration is a powerful tool and can be used when a company is in financial distress and cannot see a way out.  It’s also a speedy process, a company can be put into administration within 72 hours.

Its often used by banks when they call in a loan if they have a debenture on the business.  In this case they will often quickly appoint an administrator to try and preserve the company’s assets so that the bank can be repaid.

Administration does not suit every situation but it can be a very effective process where there are substantial assets that need to be protection or if there is value in the business and jobs to be saved when trying to sell the business.  This may even mean that the business is sold back to the existing management/directors or to a third party who has been waiting in the wings pre-administration.  Sometimes a pre-pack administration is used in this process and this is used if the buyer was lined up beforehand.

A business can still go into liquidation (following administration) as a later date – this usually happens within twelve months and occurs because unsecured creditors’ claims can only be agreed and paid out by a liquidator.

A word of advice

If the bank holds a debenture and you want to put the company into administration you will need to give the bank give clear working days’ notice and they may decide to appoint their own administrator.  You can check to see if the bank or any lender has a debenture by looking at Companies House under ‘charges’ for your company.

If you would like to know more about administration and whether it is right for you speak to one of our experts.  If you do need insolvency advice the earlier you talk to someone like us the better as you will have more options. We can help, contact us today on 0800 331 7417 or complete the form below.

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